* Limitation of historical cost accounting Historical cost accounting: assets are recorded at the amounts paid/ received at acquisition Problem: +) inflation, +) increase in asset values are not reflected in financial statements (wearing out of assets, increase in market value) Advantage: +) objective method: documentary evidence to prove the purchase price of an asset, or amounts paid as expense. +) costs can easily be verified. * Alternative method of accounting that have been
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be treated under same category or classes of assets. However, everyone must not confuse separate entity concept with separate legal entity concept which became two different concepts originating from the same source because of the differences in accounting and legal approach. Example of business entity concept is a sole trader or one man business: the sole trader takes money from the business by way of 'drawings': money for his own personal use. Despite it being his business and apparently his money
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Is a system of accounting based on the principle that assets should be valued at historical cost or historical cost is the original monetary value of an economic item. Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value. It is relaxed to some extent
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Historical-cost accounting Is a system of accounting based on the principle that assets should be valued at historical cost or historical cost is the original monetary value of an economic item. Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value
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THE ACCOUNTING REVIEW Vol. 88, No. 2 2013 pp. 463–498 American Accounting Association DOI: 10.2308/accr-50318 Managerial Ability and Earnings Quality Peter R. Demerjian Emory University Baruch Lev New York University Melissa F. Lewis University of Utah Sarah E. McVay University of Washington ABSTRACT: We examine the relation between managerial ability and earnings quality. We find that earnings quality is positively associated with managerial ability. Specifically, more able managers are
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measurement method in financial reporting to as whether a traditional basis of measurement, which is the historical cost should be use or a new basis which is the fair value should be considered. Historical cost accounting records the value of an asset on the balance sheet as the price at which it was originally purchased, which is the date of acquisition. Therefore, it is based on its nominal or original cost. In an era market by the widespread use of complicated financial instruments and risk management
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When one is setting up and maintaining a business, a large investment in property, plant and equipment is often required. These assets are often referred to as fixed assets or capital assets. There are two types of assets included in the cost of basis in long lived assets. The first is real property. Real property consists of land, land improvements (such as sidewalks and parking lots), building, and other structures attached to the land. The second type of asset is tangible personal property. An
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Income taxes and financial accounting Abstract: The paper discusses the basic elements of tax allocation, analyzes extensively the principal timing difference: accelerated depreciation for tax purposes and straight-line depreciation for published financial reporting, looks into the major aspects of SFAS No. 109, and explores the difference of GAAP and IFRS on tax allocation. 1. Income tax allocation In order to comply with IRS tax code and make sense of the tax expands for income statement
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According to Meigs and Meigs (2003), the purpose of financial statement analysis is to provide information about a business unit for decision making purpose and such information need not to be limited to accounting data. White ratios and other relationships based on past performance may be helpful in predicting the future earnings performance and financial health of a company, we must be aware of the inherent limitations of such
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Basis of Depreciation 1 Basis of Depreciation A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis Basis of Depreciation 2 Abstract The basic concept of depreciation is based on the assumption
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